Card payment systems are commonplace, allowing users to make payments using a credit or debit card. While credit card charges accumulate debt that the cardholder needs to settle periodically, debit card charges draw money from the funds available in an account. The terms “charge card” or “payment card” will be used herein below to relate to both credit and debit cards.
A charge card is associated with an account that is established with and managed by a card issuer. The card issuer is an entity that manages payments on behalf of the cardholder, and can be a bank, credit card company, telephone company, workplace, school, etc. The charge card is accepted by participating merchants, who sign with a transaction acquirer, which can be the same or other than the card issuer. In a typical transaction, the merchant calculates the payment amount, the cardholder submits his card for payment, the card adequacy to pay is verified by a process called “authorization”, the payment particulars are recorded by the merchant's POS (Point Of Service), and then, either in real time or as part of an end-of-day procedure, the transaction records are sent from the merchant to his transaction acquirer for settlement. The transaction is finalized when the transaction acquirer settles with the card issuer (if the issuer is another entity), and funds are transferred to the merchant's account on the one hand, and are charged to the cardholder's account on the other hand. Often the amount transferred to the merchant's account is slightly smaller than the one charged to the cardholder's account, the difference being a fee collected by the issuer, transaction acquirer and/or an interchange network between the transaction acquirer and the issuer.
The charge card is a means for a cardholder to identify his account and authorize transactions therewith. It can have the well-known form factor of a plastic card with embossment and magnetic stripe; it also can be a contact or contact-less smart card having a variety of form factors such as plastic card or a key fob; it also can even be just a record of account details used for performing electronic transactions over the Internet or a cellular network.
FIG. 1 is a schematic block diagram that describes a typical card payment system 100. A payment card 104 related to user account 120 makes a payment transaction 108 in the amount of X dollars with a merchant POS 112. The merchant POS 112 contacts merchant's acquirer 35 for making an authorization 116. The acquirer contacts in turn a card interchange network 25 to obtain the authorization from an issuer 15 via a protocol 355. If the transaction is successfully authorized, the cardholder receives his merchandise or service from the merchant (not shown). The transaction is ultimately completed when the funds transfer 138 of X dollars minus a fee (MF) charged to the merchant is received through settlement network 40 by merchant account 160 associated with POS 112.
Of a special interest are merchants who sell items of small monetary value, for which the fees MF charged by ordinary acquirers of card transactions represent a prohibitively high percentage of the items price. FIG. 2 shows the typical structure of a fee 200 charged to merchants for card payment processing, where the merchant fee MF is comprised of a fixed amount 210 to which a percentage amount 220 of the purchase amount is added. Typical fees 200 are devised to represent an acceptable overall percentage of most common card transactions, for example 2.5% or less. However, when the price of the good or service being sold is small, the fee incurred by the merchant accepting the card as a payment instrument can be in excess of 10% of the value of the transaction because the fixed factor 210 becomes preponderant, thus making card payments non viable for small-ticket low-margin commerce. For example, it is customary that fixed factor 210 be in the vicinity of $0.25, thus representing 25% of a $1 transaction. It should be noted that the fee MF charged to the merchant is intended to cover all the service costs incurred by the participants of charge back-end system 130 of FIG. 1, i.e. the acquirer, interchange network and issuer, and not just the acquirer.
Costs incurred by merchants for ordinary card transactions are even higher for online merchants which sell goods and services over an Internet storefront, because the transactions are deemed to be “card-non-present-transactions”, which are typically riskier than “card-present-transactions” at a physical retail Point Of Service. During a card-present-transaction, the merchant is given the opportunity to verify by itself a number of credentials about the card holder, such as that the matching of the signature at the back of the card against the card-holder's signature on a paper receipt, or the matching of the name printed on the face of the card against a requested card-holder proof-of-identity. Such verifications by the merchant are not available during an online purchase, thus increasing the risk that the card involved may not be legitimate or may have been stolen. Hence, transaction acquirers typically charge merchants a higher fee for such card-non-present-transactions, by increasing the percentage amount 220, and sometimes the fixed amount 210 as well.
FIG. 3 is a schematic block diagram that describes a typical card-non-present payment system 300. A personal computer 105 is used to browse and select a desirable good or service from a merchant's web storefront server 311, where the personal computer and the merchant server communicate remotely with each other via a known Internet protocol 306. Once the desired good or service is selected, a payment card 104 on the personal computer side makes a payment transaction 308 with a merchant POS 312 via the merchant storefront 311. The merchant POS 312 contacts a charge back-end system 130 for making an authorization 116 which is considered a card-non-present authorization. If the transaction is successfully authorized, the cardholder receives his merchandise or service from the merchant (not shown). Online merchants of small-value digital items like digital music, ring-tones for Mobile Phones or casual video games for Personal Computers or Game Consoles or Mobile Phones are thus doubly impacted by card fees: once because the fees amount to a naturally high percentage of the price of their wares, and a second time because they sell through card-non-present transactions which have a higher fee associated with them.
Some of the most sophisticated online merchants of digital goods implement methods and processes to alleviate the onerous fee structure of typical card payment systems by attempting the aggregation of a multiplicity of small-amount transactions within a given period of time (e.g. a few days). FIG. 4 illustrates a typical aggregation system 400 where a series of consecutive small-amount transactions are lumped together “behind the scenes” by a merchant POS 412 into a single larger-value transaction, which is then processed by an ordinary charge back-end system. In this way, the fee is incurred on the cumulative value of the plurality of small transactions, and in particular the fixed factor 210 of FIG. 2 is incurred only once.
Besides being financially impacted by the current cost structure of card payment systems, online merchants of digital items are also encumbered by high failure rates in the telecommunication-based fulfillment of the goods they sell. Digital items are typically sent from a merchants' computer-based server and storage system to the purchaser via shared and public telecommunication links such as phone lines, broadband cables, or wireless cells reaching a purchaser's device such as a personal computer, set-top box, game console or mobile phone. FIG. 5 is a schematic block diagram that describes a typical digital goods delivery system 500. A digital item is downloaded through the public Internet 309 via a communication protocol 307 from the Merchant's 110 to the Personal Computer 105 of the purchaser. All elements involved in the delivery of the digital goods, i.e. the merchant's server system sending the goods, the purchaser's device receiving the goods and the telecommunication system transporting the goods, are prone to technical failures, resulting in the unsuccessful fulfillment of the purchased digital goods. Examples of such failures include interruptions of the telecommunication links, corruption of the data during transfer due to noise or interferences, erroneous labeling of item references on the merchant server, lack of available memory space in the purchaser's device. The failure rates are much higher than during the fulfillment process of physical goods such as the delivery of a cinema ticket, the bagging and transporting of groceries, or the selection of a book from a store shelf. Therefore, merchants of digital goods are often confronted with complaints from customers having failed to properly receive the digital goods already selected, ordered and purchased by the customer.
Some of the most sophisticated online merchants of digital goods implement methods and processes to reduce the risk of fulfillment failures by implementing disruption-tolerant end-to-end communication protocols between their download servers and the purchasers' devices. Such resilient protocols typically allow purchasers to recover from an interruption, but they tend to be limited to high-end programmable devices like personal computers, and require a certain degree of technical sophistication from the purchaser.
These typical systems and methods, however, have limitations and drawbacks. First, the merchants implementing an aggregation method to reduce their fees incur a risk of not being paid as long as the cumulative amount of transactions has not reached the threshold for triggering an authorization request to the charge back-end system. This is particularly true when the payers are teenagers equipped with prepaid or debit cards rather than adults with a credit card. Teen prepaid or debit cards usually carry a small balance and transactions on such cards are only authorized on the basis of the balance amount and not the estimated credit-worthiness of the holder. Therefore, the merchants run a higher risk to see the transactions being declined when the aggregated amounts to be obtained from such cards are presented to the payment network. This holds true even if an authorization request was performed prior to the user starting to make purchases, as, in the mean time, the balance on the prepaid or debit card may have decreased through purchases elsewhere, below the value of the aggregated amount submitted to the network.
A second drawback is that the issuers of payment cards are usually the first entity called by purchasers if a transaction listed on their card statement is in dispute. If the problem relative to a digital good purchase is due to a fulfillment problem, then the card issuer is powerless because he is unaware of the fulfillment process and possible shortcomings or improvements of that process, and needs to refer the cardholder back to the merchant. Furthermore, if the transaction in dispute is one of a series of transactions having been aggregated by the merchant for cost-optimization purposes, then the cardholder and the issuer cannot even determine which part of the aggregated transaction may be at fault.